Britain’s currency and bond markets have been in turmoil since Finance Minister Kwasi Kwarteng announced his “mini-budget” on Friday.
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LONDON – British lenders Virgin Money, Halifax and Skipton Building Society withdrew some of their mortgage deals to clients after the tumult in British bond markets.
Virgin Money and Skipton Building Society have temporarily paused mortgage offers for new customers, while Halifax, owned by Lloyds Banking Group, plans to stop any fee-based mortgage products where lower interest rates are generally offered.
Virgin Money’s adviser said this was due to “market conditions”, while Halifax referred to the move as “significant changes in mortgage market prices”.
Skipton Building Society said it had stopped its products to “change the price following the market response in recent days”.
Britain’s bond and currency markets have been in turmoil since Finance Minister Kwasi Kwarteng announced his “mini-budget” on Friday, which included major tax cuts and a push towards the “trickle down economy”. The UK 10-year gilt yield soared to levels not seen since 2008 on Monday, while the british pound collapsed to a historical low against the dollar.
Inflation fears were accelerated by market moves, which indicated that the Bank of England would have to keep raising interest rates to fight rising prices. The central bank said so he would not be ashamed of this, as he was aiming for inflation to return to 2% and was watching events closely.
Markets have begun to price in a base rate hike of up to 6% next year from the current 2.25%, raising concerns among mortgage lenders and borrowers. This base rate is the benchmark for all types of mortgages and loans in the country.
“The average rate quoted for a two-year fixed-rate mortgage would likely rise to around 6% early next year, if the MPC [Monetary Policy Committee] raised the bank rate as fast as markets expect, 400 bps higher than two years earlier,” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, and his colleague Gabriella Dickens, senior UK economist, said in a research note.
“Households that refinance a two-year fixed-rate mortgage in the first half of next year will see monthly payments rise to around £1,490 early next year, from £863 when they took out the mortgage two years earlier.”
Changing market conditions have led some lenders to change their product offerings.
“Major mortgage players are raising their sails after the wind has turned. The dramatic overnight rise in market expectations about future rates has increased the cost of doing business, and lenders are taking a break.” to reassess and reprice,” Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said in a research note.
The developments not only mean mortgage prices will rise, but borrowers are likely to have fewer options. A number of smaller lenders have reportedly already halted sales of mortgage products in recent months due to rising interest rate pressures, shrinking the market.
This problem will only be exacerbated by product suspensions by major lenders, said Rob Gill, managing director of Altura Mortgage Finance.
“With borrowers already hit by significantly higher mortgage costs, the reduction in choice caused by larger lenders pulling out of the market will only make matters worse,” he said.
“We have seen smaller lenders pull out of the market quite regularly in recent months as they struggle to cope with rising interest rates. However, the shift towards larger lenders like Virgin Money and Halifax pulling out rates is significant and a big concern for mortgage lenders. borrowers.”